Frustrated farmers in Ghana face loan crisis

Ghanaian farmer Emmanuel Darkey, who runs a sweet potato production and processing business, is growing frustrated with the difficulty of persuading banks to finance themselves. Over the years, he says, he has faced many “bitter experiences” trying to secure funds from lenders for his business.

“Banks don’t help. I have sent requests to a few banks and the process can take three years in addition to the documents they will request. It’s too much,” he said.

“They’d rather fund someone bringing toothpicks from China than fund someone here to produce because they know their money is intact.”

An industry in decline

Agriculture remains an important but declining sector of the Ghanaian economy. A 2019 World Bank estimate puts its contribution to the labor force at 30%, up from 51% in 2009.

Its contribution to GDP is also decreasing. An Oxford Business Group report that looked at the sector in 2020 said that over the past decade the sector’s contribution to national growth has more than halved. In 2009, it stood at 32% of nominal GDP but fell to 15% from the second quarter of 2019.

The sector has great potential for growth, given Ghana’s growing population for domestic consumption and the establishment of the African Continental Free Trade Area for exports, experts say, but limited access to finance for buying modern equipment, chemicals and seedlings have all hindered the growth of the sector. .

This is particularly hard on poor smallholder farmers, who are unable to obtain finance for much-needed inputs. Those who approach banks for financing, such as Emmanuel Darkey, have their requests repeatedly rejected.

Lack of confidence

Fundamentally, banks don’t trust local farmers, according to a 2021 research paper by Evans Teye, development specialist at Solidaridad, an international network that campaigns to create fair and sustainable supply chains, and Philip Quarshie, PhD student in geography at the University of Guelph, Ontario, Canada.

“The study noted that issues of distrust of smallholder farmers in financial institutions act as barriers to facilitate their access to loans and credit,” the summary states.

“Banks and financial institutions relay their distrust through actions such as asking for outrageous guarantees, guarantors, high sum of savings capital and high interest rate for agricultural loans, delays and bureaucratic processes to access loans.

The study indicates that an enabling policy environment and frameworks with supportive rural infrastructure such as warehouse receipt systems can significantly increase farmers’ access to credit to invest in modern technology.

Slow loan processing methods are being deployed to deter farmers, say Teye and Quarshie. In 2017, the Bank of Ghana set the interest rate at around 30%. Although it has been reduced to 14.5%, some banks, including village savings and loan groups, microfinance companies or rural banks, set their rates above the threshold – far too high for many.

Experts say farmers’ distrust stems from not repaying their loans when they suffer crop failures or post-harvest losses in an unpredictable sector.

Ghana’s post-harvest losses in 2018 amounted to $141 million and this figure could reach over $200 million in 2022, according to the Africa Post-Harvest Losses Information System (APHLIS), a private sector initiative which collects data on post-harvest losses. in west Africa.

According to Teye and Quarshie, it is still possible to grant farmers access to finance based on their ability to repay, even in the face of the danger of post-harvest loss. Indeed, one of the best ways to reduce post-harvest losses and bring predictability to the agricultural sector is to invest in the kind of modern technologies and climate-smart farming methods that smallholders demand.

Regimes in difficulty

Some programs have been put in place – with limited success – to support farmers. The GIRSAL (Ghana Incentive-Based Risk Sharing Agricultural Lending) project was set up in 2018 to reduce agricultural finance risks and stimulate increased lending to the agricultural sector by financial institutions.

The ambitious non-bank financial institution was to provide credit risk guarantees to financial institutions lending to farmers and support them with technical assistance to improve their knowledge and understanding of the sector, building their capacity to appraise and structure loan applications.

To achieve this, the Bank of Ghana, the Ministry of Finance, the Agricultural Development Bank (AfDB) and the African Development Bank have come together to pool their resources and commit to making the system work. Since its launch, there has been progress, according to AfDB Managing Director John Kofi Mensah, who says his own institution has returned to its primary role of providing credit to agribusinesses.

The organization has also been able to promote its work to the farming community, he adds. The initiative has actively used social media such as Facebook and Twitter to alert the public to its activities. On its website, GIRSAL indicates that it has helped farmers in the horticulture, cereals, arboriculture, roots and tubers, pulses, poultry, fishing and livestock sectors.

But the fact that GIRSAL exists does not mean that its activities and interventions are generalized, explains Philip Quarshie African Affairs.

“Few smallholders know about GIRSAL or how it works and the issues of mistrust between banks and smallholders are still there,” he says.

Without more resources and without a new advertising campaign from GIRSAL – not to mention a complete overhaul of banking practices – smallholder farmers are once again at risk of returning empty-handed from their next visit to the bank.

Janet E. Fishburn